Harvard Case - The Oreo in China: Time to Get it Right or to Get Out
"The Oreo in China: Time to Get it Right or to Get Out" Harvard business case study is written by Srinivas K. Reddy, Kevin Sproule. It deals with the challenges in the field of Strategy. The case study is 21 page(s) long and it was first published on : Sep 26, 2012
At Fern Fort University, we recommend that Mondelez International (MDLZ) should re-strategize its approach in the Chinese market by focusing on innovation, localization, and a digital-first strategy. This strategy should prioritize building a strong local brand identity while leveraging its global expertise and resources. MDLZ should embrace a long-term perspective and be prepared to invest in building a sustainable and profitable business in China.
2. Background
This case study examines Mondelez International's struggles in the Chinese market with its iconic Oreo cookie brand. Despite its global success, Oreo has faced significant challenges in China, failing to capture the market share it had anticipated. The case highlights the company's initial missteps in understanding the local consumer preferences, its lack of a tailored marketing strategy, and its inability to adapt to the rapidly evolving Chinese market.
The main protagonists are:
- Mondelez International (MDLZ): The multinational food and beverage company owning the Oreo brand.
- Oreo: The iconic cookie brand facing challenges in the Chinese market.
- Chinese Consumers: The target audience with unique preferences and evolving consumption patterns.
3. Analysis of the Case Study
To analyze the situation, we can apply several frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: High - The Chinese market is highly competitive, with many local and international players.
- Bargaining Power of Buyers: High - Consumers have many choices, and price sensitivity is high.
- Bargaining Power of Suppliers: Moderate - MDLZ has some bargaining power, but the reliance on local suppliers for ingredients and distribution can impact margins.
- Threat of Substitutes: High - Many local snacks and confectionery products compete with Oreo.
- Competitive Rivalry: High - The market is crowded with established players and new entrants.
2. SWOT Analysis:
Strengths:
- Global Brand Recognition: Oreo enjoys strong brand recognition globally.
- Product Quality: Oreo has a reputation for high-quality products.
- Innovation Capability: MDLZ has a proven track record in product innovation.
Weaknesses:
- Lack of Local Understanding: Initial marketing strategies were not tailored to Chinese consumer preferences.
- Limited Distribution Network: Distribution was not widespread enough to reach all potential customers.
- Price Sensitivity: The price point was not competitive enough in the Chinese market.
Opportunities:
- Growing Middle Class: The Chinese middle class is expanding, offering a significant potential market for premium products.
- E-commerce Growth: The rise of online shopping provides new avenues for reaching consumers.
- Digital Marketing Potential: Leveraging social media and digital platforms can effectively reach target audiences.
Threats:
- Intense Competition: The market is highly competitive, with many local and international players.
- Economic Slowdown: Economic fluctuations can impact consumer spending.
- Changing Consumer Preferences: Chinese consumers are increasingly health-conscious, potentially impacting demand for sugary snacks.
3. Value Chain Analysis:
- Inbound Logistics: MDLZ needs to optimize its supply chain to ensure efficient sourcing of ingredients and packaging.
- Operations: Manufacturing processes need to be adapted to local preferences and regulations.
- Outbound Logistics: Distribution channels need to be expanded to reach a wider audience.
- Marketing & Sales: A tailored marketing strategy is crucial for building brand awareness and driving sales.
- Customer Service: Providing excellent customer service is essential for building brand loyalty.
4. Business Model Innovation:
- Product Innovation: Developing new flavors and formats tailored to Chinese tastes.
- Distribution Innovation: Leveraging e-commerce and expanding partnerships with local retailers.
- Marketing Innovation: Utilizing digital marketing channels and influencer marketing.
- Pricing Strategy: Offering competitive pricing based on value and perceived quality.
4. Recommendations
- Embrace a Digital-First Strategy: Leverage the power of the internet, social media, and e-commerce to reach a wider audience and engage with consumers.
- Develop Localized Products and Marketing: Conduct thorough market research to understand Chinese consumer preferences and tailor products and marketing campaigns accordingly.
- Build a Strong Local Brand Identity: Develop a distinct brand identity that resonates with Chinese consumers, emphasizing local values and cultural nuances.
- Invest in a Robust Distribution Network: Expand distribution channels to reach a wider audience, including online retailers and local convenience stores.
- Leverage Technology and Analytics: Utilize data analytics to understand consumer behavior, optimize marketing campaigns, and improve product development.
- Foster Partnerships with Local Businesses: Collaborate with local businesses, influencers, and retailers to build trust and enhance brand awareness.
- Embrace a Long-Term Perspective: Be prepared to invest in building a sustainable and profitable business in China, recognizing that success may take time.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: MDLZ's core competency lies in its global brand recognition, product quality, and innovation capability. These strengths can be leveraged to build a successful business in China.
- External Customers and Internal Clients: The recommendations focus on understanding and meeting the needs of Chinese consumers while also empowering internal teams to adapt and innovate.
- Competitors: The recommendations aim to differentiate Oreo from competitors by offering unique products, tailored marketing, and a strong local brand identity.
- Attractiveness ' Quantitative Measures: While specific financial projections are not provided, the recommendations aim to improve profitability by increasing market share, optimizing distribution, and leveraging digital marketing.
6. Conclusion
Mondelez International has a significant opportunity to succeed in the Chinese market with Oreo. By embracing a long-term perspective, investing in innovation, localization, and a digital-first strategy, MDLZ can build a strong and sustainable business in China.
7. Discussion
Other alternatives not selected include:
- Exiting the Chinese market: This option would be a significant loss for MDLZ, given the potential of the Chinese market.
- Continuing with the current strategy: This option is unlikely to lead to success, given the challenges faced by Oreo in China.
Risks and Key Assumptions:
- Economic uncertainty: A slowdown in the Chinese economy could impact consumer spending.
- Competition: The competitive landscape in China is constantly evolving, and new competitors may emerge.
- Cultural sensitivity: Misunderstandings of Chinese culture could lead to marketing missteps.
8. Next Steps
- Conduct thorough market research: Understand Chinese consumer preferences, competitive landscape, and market trends.
- Develop a comprehensive marketing plan: Tailor marketing campaigns to Chinese consumers, leveraging digital channels and local influencers.
- Invest in product innovation: Develop new flavors, formats, and packaging that resonate with Chinese consumers.
- Expand distribution channels: Partner with local retailers and e-commerce platforms to reach a wider audience.
- Monitor performance and adapt strategies: Continuously evaluate the effectiveness of strategies and make adjustments as needed.
By taking these steps, MDLZ can position Oreo for success in the dynamic and lucrative Chinese market.
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Case Description
In late 2005 As Shawn Warren the head of biscuits at Kraft for Asia Pacific, surveys the China market for Oreos he knew he had to make changes, and fast. The company's flagship brand was falling far short of expectations in the world's most populous country. This meant that the turnaround had to be quick to avoid the complete disaster of pulling the product from the shelves altogether. Oreos were first launched in China in 1996, yet sales had been flat since then while the rest of China had been setting record growth in the biscuit industry. The Oreo case illustrates the dilemma faced by a successful multinational brand when entering an emerging market, namely China. It covers the complexity of dealing not only with differing consumer tastes, but also the challenges of local competition and distribution systems. The case provides a rich historical account of Oreo's entry into China and the problems facing Kraft and its management as it strives to reach its full potential in a large and fast-growing emerging market.
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